Financial Advice for the Young

by Mr. Cheap

While digging through Larry MacDonald’s archives, I came across a post where he talks a bit about young investors. He eloquently articulates what I am trying to do right now to accomplish an early retirement.

His advice is to live WELL below your means (he suggests 40-75% of income) instead of the typical 5-15% for a few years when starting out. You won’t miss the lifestyle (since you’ll keep living the way you were before), and by delaying starting a high-consumption lifestyle, you’ll build a nest-egg that will give you many options down the road.

I’ve basically been living this way since I graduated from university. Instead of rapidly building up a nest-egg, I’ve used the low-cost lifestyle to have periods of travel, school and not working (and not working on my own steam, not by using welfare or social assistance or anything like that – I’ve always stood on my own two feet).

I’m hopeful that I might be able to spend a few years, build up the nest egg, then do whatever I want with the rest of my life.

Its always nice to come across someone who seems thoughtful and intelligent who thinks the same way you do :-).

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Thanks for the mention. Actually, that’s what I did too. It gives one a sense of having choices (as long as the accumulated capital is maintained). You aren’t compelled to work at a certain job most of your life because you need the money; you can choose to do things more because that’s what you want to do (e.g. writing books, in my case). It’s better, in my opinion, than the transitory pleasures of a few years of “living-it up” in your twenties.

Yup, same here. I’ve pretty much stayed living the same way as I did through university. Heck, I don’t even have cable tv, though I do own shares in Rogers 🙂 The only exception was to buy a car to get to work but even then, I didn’t buy it right away. Like you, I’m hoping saving every possible cent will help me get one step closer to my dreams.

Larry: Yes, I think that’s been my mistake in the past: I use the accumulated capital to give myself choices, but I don’t maintain it. Hopefully this time I can structure things a bit better. How long did it take you to build up your nest egg to the point you felt free to do your own thing?

WE: Good for you! I’ve been trying to get my girlfriend to give up cable TV, but its a tough fight (we just got it a couple of months ago, so I can understand that she doesn’t want to turn it on and off like a Christmas light).

4P: I think there’s a few of us nutters who can actually do it. What made you think it’d be too hard? Do you think most people feel deprived after graduation and feel entitled to starting “living the good life”?

LM: That would just about correspond with my time-frame for the shift (hopefully). Did you take a break and chill out for a while after the 12 years or did you start writing book immediately? How supportive were your wife and family? (I’ve been getting a lot of odd looks from friends and family when I discuss it, so I’m thinking I need to do a better job framing what my intentions are). Did you ever go through any “protestant work ethic” guilt for not having a 9-5 job anymore?

Mr. Cheap
The catalyst for leaving was a contract signed to write a book with a publisher, so I went straight to work on that. At the time, I was between girlfriends (but now married with kids). No protestant work ethic guilt — if anything, the problem is the opposite: when doing something you love doing, it’s sometimes hard to pull away and take the breaks required for a proper work/lifestyle balance.

I am always amazed at anyone who lives on their own during University and can actually save money. I worked during the last two years of my degree, but I never had a spare dollar to save.

My motivation to save and invest was created by my interest in the markets and my realization that I could be wealthy later in life if I started now. The trick is not letting your lifestyle catch up with your income.